COST OPTIMISATION


FEATURE SPONSOR


TREASURY SOFTENS THE DEBT TAX BLOW


TO INFRASTRUCTURE The UK government has confirmed, in documents published recently, that a wide range of infrastructure assets will be partly excluded from new rules limiting tax relief on interest payments that come into effect on 1 April 2017.


Broadly, the new rules will limit the tax relief that groups can claim for their net UK interest expense related to shareholder and bank debt to 30% of their annual EBITDA. The Treasury estimates that the reform, which is linked to the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, will increase tax revenues by GBP 1bn each year. However, it is expected that many companies across the


renewables and utility sectors will still be able to deduct most of their third party debt interest from their tax liabilities under a proposed exemption for ‘public benefit infrastructure’ assets.


CONSULTATION PROCESS


There was significant feedback during the consultation process that the scope of the proposed exemption was too narrow and this led the government to announce a broadening of the definition of the exemption. However, draft legislation defining precisely which companies will be able to opt for the exemption is still to be published at the time of writing (expected end of January 2017). What is clear from government comments however, is that the exemption will only relate to third party debt interest. The majority of respondents to the consultation felt that not including shareholder or related party debt interest would impact returns on some existing projects by between 5% and 10% which could damage investor confidence, with a potential lower investment or higher risk premiums for UK projects in the future.


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